Biden reveals sweeping tax hikes to pay for $2T infrastructure plan
President Biden on Wednesday unveiled his sweeping tax-hike agenda ahead of a speech in Pittsburgh to promote an over $2 trillion infrastructure plan funded by hikes that could hit both companies and the upper middle class.
The “Build Back Better” proposal being presented Wednesday will be split into two tax-and-spend packages for Congress to weigh, with the first focusing on infrastructure and the second focusing on funding Democrats’ domestic policy platform.
The White House branded the tax hikes as a “Made in America Tax Plan” and they are likely to face a bitter partisan fight in Congress.
One tax increase would boost the corporate tax rate from 21 percent to 28 percent, partially repealing a steep drop in taxes on companies adopted in 2017 by former President Donald Trump and the then-Republican-led Congress.
Another would tax companies’ overseas profits.
And Biden is expected also to push for a pair of tax hikes that will hit higher-income Americans and people who pay capital gains taxes on investments like stocks and real estate.
“Alongside his American Jobs Plan, President Biden is releasing a Made in America Tax Plan to make sure corporations pay their fair share in taxes and encourage job creation at home,” the White House said in a morning fact sheet.
“President Biden believes that profitable corporations should not be able to get away with paying little or no tax by shifting jobs and profits overseas. President Biden’s plan will reward investment at home, stop profit shifting, and ensure other nations won’t gain a competitive edge by becoming tax havens.”
The corporate tax was lowered from 35 percent to 21 percent during Trump’s first year in office by Republicans who argued it would bring the US in line with competitors’ tax rates and help businesses grow.
Another Biden tax change would apply a new tax on foreign subsidiaries of US companies.
“Right now, the tax code rewards U.S. multinational corporations that shift profits and jobs overseas with a tax exemption for the first ten percent return on foreign assets, and the rest is taxed at half the domestic tax rate,” the White House fact sheet says.
“Moreover, the 2017 tax law allows companies to use the taxes they pay in high-tax countries to shield profits in tax havens, encouraging offshoring of jobs. The President’s tax reform proposal will increase the minimum tax on U.S. corporations to 21 percent and calculate it on a country-by-country basis so it hits profits in tax havens. It will also eliminate the rule that allows U.S. companies to pay zero taxes on the first 10 percent of return when they locate investments in foreign countries.”
Biden’s corporate tax changes include:
- Boosting the corporate tax rate from 21 percent to 28 percent. The rate was 35 percent before Trump’s 2017 reform law.
- A hike on taxes on overseas income of US-based companies. The change would eliminate a rule that the first 10 percent isn’t taxed and set a 21 percent tax rate that applies on a per-country basis, meaning firms can’t offset profits in tax havens with higher taxes in other countries.
- Reform to make it more difficult for US companies to perform an “inversion” that technically shifts their residence abroad to lower taxes, as many US firms have done to relocate on paper to Ireland and other lower-tax jurisdictions.
- Changes to limit tax write-offs for offshoring jobs and steps to end tax policies that benefit the fossil fuel industry.
- A new 15 percent minimum tax on corporate profits reported to investors so that deductions won’t allow lower payments.
The fact sheet did not include clarification of the White House’s often-repeated proposal to increase the tax rate on the highest-earning individual income bracket or to boost capital gains taxes to match ordinary income tax rates, including when a person dies.
Combined, the Biden tax hikes would raise approximately $2 trillion to cover the infrastructure bill, which Democrats are likely to attempt to ram through Congress with a bare majority in the Senate under budget reconciliation rules.
The budget reconciliation rules may allow Democrats to avoid the usual 60 votes needed for bills in the Senate. Biden this month signed a $2 trillion COVID-19 stimulus bill that passed Congress with no Republican support in either chamber under budget reconciliation.
The higher corporate tax rate would yield $730 billion over 10 years according to the Tax Policy Center, Axios reports. The tax on foreign subsidiaries would net an estimated $550 billion. The hike on capital gains would earn the government about $370 billion and the hike on the highest income bracket from 37 percent to 39.6 percent would garner $110 billion.
How exactly the higher-bracket tax hike would work is unclear.
White House Press Secretary Jen Psaki recently clarified the hike would apply to families earning $400,000 per year — meaning two adults who make $200,000, a seeming contradiction of Biden’s own recent statement that “if you make less than $400,000, you won’t see one single penny in additional federal tax.”
The capital gains and individual income tax changes were not described in the White House fact sheet and are likely to be fiercely opposed by Republicans and potentially some centrist Democrats.
Capital gains taxes can hit middle-class Americans particularly hard when they sell homes that have appreciated in value. Conservatives say the current highest capital gains rate of 20 percent is unfair because it does not account for inflation.
A plan put forward this week by Senate Democrats led by Sens. Bernie Sanders of Vermont and Elizabeth Warren of Massachusetts would exempt the first $1 million in income or inheritance from a new capital gains increase.
The White House fact sheet says Biden also will propose “ramping up enforcement against corporations” that allegedly evade taxes. It says he also wants to reverse policies that benefit fossil fuel firms.
“The current tax code includes billions of dollars in subsidies, loopholes, and special foreign tax credits for the fossil fuel industry,” the White House release says. “As part of the President’s commitment to put the country on a path to net-zero emissions by 2050, his tax reform proposal will eliminate all these special preferences.”
Biden’s infrastructure plan “will invest about $2 trillion this decade. If passed alongside President Biden’s Made in America corporate tax plan, it will be fully paid for within the next 15 years and reduce deficits in the years after,” the White House said.
